The Internal Revenue Service (IRS) has announced the cost of living adjustments affecting dollar limitations for pension plans and many other retirement – related items for the tax year of 2017.

The code Section 415 of the IRS code provides for dollar limitations on benefits and contributions under the qualified retirement plans. Please note, Section 415(d) requires the Secretary of the Treasury to adjust these limits for cost of living increments.

 

Cost of Living Adjusted Limits for 2017

The limitation on the annual benefit under a defined plan is increasing from $210,000 to $215,000 effective January 1, 2017. Please note, if a participant separated from the service before the effective date then the participant’s limitation under a defined benefit plan § 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2016, by 1.0112.

The defined contribution plans’ limitation under § 415(c)(1)(A) also increasing from $53,000 to $54,000 from the effective date of January 1, 2017.

 

Dollar limitations of § 415(b)(1)(A)

The code provides the adjustment of other dollar amounts at the same time and also, in the same manner as the dollar limitations of § 415(b)(1)(A). The following are the amounts for 2017.

 

Limitations with increments from effective date:

  • Annual compensation limit is increasing from $265,000 to $270,000.
  • Dollar limitation concerning “key employee” definition in a top heavy plan is increasing $170,000 to $175,000.

 

Unchanged limitations:

  • Limitation on the exclusion for elective deferrals described in § 402(g)(3) remains at $18,000.
  • “Highly compensated employee” definition’s limitation remains at $120,000.
  • Dollar limitation for catch up contributions applicable employer plan other than a plan described in § 401(k) (11) or § 408(p) for individuals aged 50 or over remains at $6,000 and for catch up contributions to an applicable employer plan described in § 401(k) (11) or 408(p) for individuals aged 50 or over remains at $3,000.
  • Limitation of deferred compensation plans of state and local governments and tax exempt organizations remains at $18,000.

 

 

Cost-of-living adjustment under § 1(f)(3)

The threshold used to determine whether a multi employer plan is a systemically important plan under § 432(e)(9)(H)(v)(III) (aa) remains at $1,012,000,000.

The following are the 2017 amounts of cost-of-living adjustment under § 1(f)(3)

 

Limitations with increments from effective date:

  • Dollar amount for the determination of deductible amount for active IRA contribution taxpayers filing joint return or as qualifying widow is increased from $98,000 to $99,000 and also, is increasing from $61,000 to $62,000 for other active taxpayers.
  • Deduction for active taxpayers contributing to traditional IRA for single or heads of households with adjusted gross income (between $62,000 and $72,000) is increasing between $61,000 and $71,000. For married joint return active taxpayers with adjusted gross income $99,000 and $119,000, the deduction is increasing from between $98,000 and $118,000.

 

Unchanged limitations:

  • Adjusted gross income limitation for determining the retirement savings contribution credit for married taxpayers filing join return remains at $37,000.
  • Deductible amount for individuals making qualified retirement contributions remains at $5,500.

 

Taxpayers may deduct contribution to a traditional IRA if certain conditions are met. Reductions may be reduced, eliminated or phased out if either the taxpayer or their spouse was covered by a retirement plan at work.

 

The attached link in this alert covers the income ranges for the determination of eligibility for deductible contributions to traditional IRA, Roth IRA and also to claim the saver’s credit. It includes more in depth details of dollar amount limitation those have increased and remained unchanged along with full description of adjusted and unadjusted limitations.

 

IRS Announces 2017 Pension Plan Limitations can be accessed here.

 

Thank you for choosing Paylocity as your payroll tax partner. Should you have any questions please contact your Paylocity Account Manager.

 

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a payroll service provider are encouraged to seek the advice of a qualified CPA, tax attorney, or advisor.